Grand Central (GP) Limited & Ors v Birmingham City Council [2021] EWHC 3043 (TCC)

[2021] EWHC 3043 (TCC)Case No HT-2021-000067IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND AND WALESTECHNOLOGY & CONSTRUCTION COURT (QBD)Venue The Rolls Building, 7 Rolls BuildingsLondon, EC4A 1NLDate of hearing: 15 th October 2021
Before
MRS JUSTICE JOANNA SMITH DBE
Between
(1) GRAND CENTRAL (GP) LIMITEDClaimants(2) GRAND CENTRAL NO 1 LIMITEDClaimant(3) GRAND CENTRAL NO 2 LIMITEDClaimantBIRMINGHAM CITY COUNCILDefendantNETWORK RAIL INFRASTRUCTURE LIMITEDThird Party
MR A. NISSEN QC and MR P. BURY (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for Claimants.MISS S. HANNAFORD QC (instructed by Anthony Collins Solicitors) for Defendant.
Approved Judgment
If this Transcript is to be reported or published, there is a requirement to ensure that no reporting restriction will be breached. This is particularly important in relation to any case involving a sexual offence, where the victim is guaranteed lifetime anonymity (Sexual Offences (Amendment) Act 1992), or where an order has been made in relation to a young person.This Transcript is Crown Copyright.  It may not be reproduced in whole or in part other than in accordance with relevant licence or with the express consent of the Authority.  All rights are reserved.Digital Transcription by Marten Walsh Cherer Ltd.,2 nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP.Telephone No: 020 7067 2900. DX 410 LDEEmail: info@martenwalshcherer.comWeb: www.martenwalshcherer.comDate 2021-10-15

Introduction

[1]This is an application dated 26 July 2021 for the hearing of a preliminary issue. The application is made by the claimants (“Grand Central”) in advance of the first case management conference listed for 17 December 2021. Broadly, Grand Central says that the application is made “at this early stage (as opposed to leaving it as an issue to be discussed at the CMC, as the TCC Guide mentions as a possibility) on the basis that the question of whether there is to be a preliminary issue, and the outcome of that preliminary issue, are likely to have a significant impact on the time and resources required for the remaining steps to trial and, therefore, from a case management perspective as well as potentially from a settlement perspective, there are advantages in having these matters dealt with before the CMC or shortly thereafter” (paragraph 4 of the witness statement of Mr Williams).[2]The defendant (“BCC”) opposes the application. Alternatively, it says that the application is premature and that it should be addressed at the CMC.[3]Evidence has been served by Grand Central in support of the application in the form of a witness statement from Mr Steven Williams (to which I have already referred) dated 26 July 2021. Evidence in opposition to the application has been served by BCC in the form of a witness statement from Mr Andrew Lancaster dated 21 September 2021. I have also received detailed and helpful skeletons from counsel and listened to their oral submissions this morning, for which I am very grateful. Background to the Proceedings[4]The proceedings relate to a multi-storey car park at Grand Central Shopping Centre (“the Centre”) in Birmingham. The Centre comprises Birmingham New Street Station, a shopping centre and the car park.[5]On 22 January 2009, BCC entered into a master agreement (“the Master Agreement”) with Network Rail Infrastructure Limited (“Network Rail”), freehold owner of the Centre, in relation to the Birmingham Gateway Project (“the Project”) which involved works to Birmingham New Street Station and the redevelopment of the Centre. The Project originally included a fifty-space extension of the car park. Pursuant to an Option Agreement for Surrender and the Grant of an Interim Lease and New Lease dated 5 September 2011 (“the NCP Option Agreement”) between BCC and National Car Parks Limited (“NCP”), the tenant of the car park, it was intended that, upon completion of the car park, NCP would enter into a “New Lease”.[6]Following the discovery of defects in the existing car park, it was agreed that the car park would be demolished and replaced with a new car park (“the Car Park” and “the Car Park Works”). That change was recorded in a Memorandum of Variation to the NCP Option Agreement dated 30 March 2012.[7]The NCP Option Agreement, as amended by the Memorandum of Variation, imposed various obligations on BCC (in particular at clauses 14 and 20) to ensure that(i) the Car Park Works were carried out in accordance with the terms of a building contract entered into between Network Rail and Vinci Construction Ltd (“Vinci”) and(ii) snagging was completed as soon as possible and defects in the Car Park Works were made good promptly.[8]Practical completion of the Car Park Works was certified as 9 June 2015. In the event, however, NCP did not enter into the New Lease.[9]On 11 September 2015, Network Rail granted BCC a long lease of the Centre (“the Network Rail Lease”). Pursuant to a sale and purchase agreement dated 21 January 2016 (“the SPA”), BCC sold the Network Rail Lease to Grand Central.[10]In circumstances where NCP had not entered into the New Lease, the SPA recorded that BCC had continuing obligations under the NCP Option Agreement (namely, the obligations to which I have already referred in clauses 14 and 20 thereof). Grand Central was therefore given the benefit under the SPA of an indemnity from BCC in relation to those obligations.[11]That indemnity was contained in clause 33 of the SPA which provided as follows (the ‘Seller’ being BCC and the ‘Buyer’ being Grand Central): “33.1 The Seller is to33.1.1 observe and perform its obligations in and the other provisions of the NCP Compensation Deed and the NCP Option Agreement; and33.1.2 (subject to clause 33.2) to indemnify the Buyer against any NCP Claims that are made against the Buyer and any NCP Losses that are suffered by the Buyer, during the period from and including the Date of Actual Completion up until the date on which the NCP Option Agreement, or any lease which is granted to NCP pursuant to the NCP Option Agreement after the Date of Actual Completion, is terminated or otherwise or brought to an end.[12]The term “NCP Losses” as it appears in clause 33.1 is defined in the SPA at clause 1.1 as follows:
“All reasonably foreseeable losses, costs, damages, expenses and liabilities reasonably and properly incurred by the Buyer (including all rents that would otherwise be receivable from NCP, but excluding VAT if and to the extent that such VAT can be recovered by the Seller or the Buyer) which are either agreed or determined to be as a consequence of any breach by the Seller of its obligations in and other provisions of the NCP Compensation Deed and/or the NCP Option Agreement and/or as a consequence of the failure by NCP to complete a lease in the Agreed Form pursuant to the NCP Option Agreement.”
[13]Grand Central’s case is that there are various defects in the Car Park. The most significant allegation is that ramps were constructed without linear reductions and/or transition zones which means that cars ground on the crest and sag points. This is referred to by Grand Central as “the Grounding Defect”. There are also allegations of other defects relating to headroom, ramp width and aisle geometry.[14]On 31 March 2016, Network Rail and BCC entered into a variation to the Master Agreement (“the Master Agreement Variation”), the purpose of which was to recognise Network Rail’s continued responsibility to complete certain of the Car Park Works, to remedy defects in the Car Park and to compensate BCC for any losses relating to such defects in full.[15]On 4 September 2018, Grand Central, BCC and NCP entered into a tripartite conditional settlement agreement (“the TSA”) and Grand Central and BCC entered into a bipartite conditional settlement agreement (“the BSA”) designed to ensure that BCC completed the remedial works required to the Car Park. The TSA and BSA were subsequently terminated by Grand Central in or around April 2020 in circumstances where it took the view that BCC had failed to complete the necessary remedial works to the Car Park. Grand Central then decided to carry out the remedial works itself.[16]In April 2020, Grand Central also entered into a Management Agreement with NCP in relation to NCP’s continuing occupation of the Car Park.[17]NCP purported to terminate the NCP Option Agreement by notices of 30 April 2020 and 1 May 2020. It is BCC’s case in these proceedings that those purported terminations were repudiatory breaches which were accepted by BCC on 29 May 2020.[18]Grand Central commenced these proceedings and served its Claim Form and Particulars of Claim on 26 February 2021. It claims over £20 million from BCC pursuant to the indemnity provision in the SPA and/or as damages, including(i) alleged lost rents;(ii) the cost of remedial works to remedy the Grounding Defect plus other associated losses;(iii) the diminution in value of the Centre following the remedial works arising out of residual blight and various other defects;(iv) and professional fees incurred in attempting to progress remedial works pursuant to the TSA and the BSA.[19]BCC served its Defence and Counterclaim on 1 June 2021. BCC denies that it is liable to Grand Central on various alternative bases (to which I shall return in a moment) and counterclaims the sum of £3.39 million which it contends is due for repayment by Grand Central to BCC following termination of the TSA and the BSA.[20]Also on 1 June 2021, BCC commenced Part 20 proceedings against Network Rail. The Claim Form and Particulars of Additional Claim in those proceedings were served on 25 June 2021. BCC is therefore seeking to pass on to Network Rail any liability it may have to Grand Central and to recover its own directly incurred costs pursuant to the Master Agreement Variation.[21]On 4 August 2021, Grand Central served its Reply together with its Response to a Part 18 Request served by BCC. On 24 September 2021, Network Rail served its Defence and Counterclaim to BCC’s Particulars of Additional Claim. Network Rail also served Part 20 Particulars of Additional Claim against Vinci on the same date seeking to pass on to Vinci any liability it may have to BCC together with its own directly incurred costs. There are therefore now four parties to this litigation. Vinci’s Part 20 Defence is due to be served on 10 December 2021 and, as I have said, the first CMC in these proceedings is listed for 17 December 2021. The Statements of Case[22]There are a number of key paragraphs in the statements of case relating to the indemnity claim, to which I need to refer in a little more detail.[23]Paragraph 11 of the Particulars of Claim pleads that, as a result of BCC’s breaches, Grand Central has suffered loss for which it is entitled to be indemnified and/or claims as damages, including loss of rents. This loss is said to arise as follows:
“BCC’s failures to resolve the defects in the Car Park have meant that NCP has not entered into the New Lease, and Grand Central has therefore not received the rents from NCP to which it would otherwise have been entitled. To date, BCC has paid certain sums in respect of these lost rents, but this has undercompensated Grand Central and further sums remain unpaid.”
[24]Paragraph 14 of the Particulars of Claim sets out clause 33 of the SPA together with various relevant definitions, including the definition of NCP Losses. Paragraph 79 of the Particulars of Claim addresses specifically what are referred to as the “New Lease Losses” i.e. NCP Losses in the form of the loss of rental; in particular base rent, service charge rent, insurance rent, turnover rent and interest that it is said Grand Central would have recovered had NCP entered into the New Lease. This element of the claim is worth something in the region of £3.7 million.[25]At paragraph 80 the Particulars of Claim plead that:
“These NCP Losses have arisen as a consequence of NCP not completing the New Lease pursuant to the NCP Option Agreement and/or of BCC’s breaches of the NCP Option Agreement set out in Section H below.”
[26]In its Defence and Counterclaim at paragraph 16, BCC pleads for the first time, as I understand it, that it is its case that:
“…on a proper construction of Clause 33.1.2 and the definition of ‘NCP Losses’ in the SPA, BCC is only liable to indemnify Grand Central under Clause 33.1.2 in respect of lost rent if it is agreed or determined that the loss of rent was reasonably foreseeable and has been reasonably and properly incurred [as] a consequence of (1) any breach by BCC of the NCP Compensation Deed and/or the NCP Option Agreement and/or (2) NCP’s refusal in accordance with the terms of the NCP Option Agreement (i.e. lawfully) to enter into the New Lease.”
[27]Thus BCC says that the indemnity in the SPA is not engaged if NCP’s actions in refusing to take on the New Lease were in fact unlawful; on BCC’s case, clause 33.1.2 only applies in the event of a lawful refusal by NCP to enter into the New Lease.[28]Paragraphs 9 and 10 of the Defence and Counterclaim deal with the purported termination of the NCP Option Agreement, alleging that NCP has acted unlawfully in varying respects:
“Except that NCP was not entitled to refuse to enter into the New Lease, paragraph 9 is admitted. NCP purported to terminate the NCP Option Agreement by notice of 30 April 2020 on the basis that the New Lease was not completed by 10 April 2017, which it alleged entitled it to terminate under Clause 24.2 of the NCP Option Agreement. By a further notice of 1 May 2020, NCP purported to terminate on two further grounds, namely that (1) there were allegedly fewer than 316 spaces suitable for commercial use at the Car Park, which entitled it to terminate under Clause 21.4 of the NCP Option Agreement and (2) there were allegedly unremedied defects in the Car Park. However: 9.1 NCP was not entitled to terminate under Clause 24.2 because the failure to enter into the New Lease was due to its own ‘act, omission or delay’ in that it had refused to enter into the New Lease. 9.2 NCP was not entitled to terminate under Clause 21.4 because the Car Park has more than 390 spaces (as Grand Central pleads at paragraph 100). 9.3 The existence of alleged defects in the Car Park was not a ground entitling NCP to refuse to enter into the New Lease or to terminate the NCP Option Agreement. 10. In the premises, NCP’s failure to enter into the New Lease was a breach of Clause 4.5 of the NCP Option Agreement, and its purported termination by letters of 30 April 2020 and/or 1 May 2020 were repudiatory breaches that were accepted by BCC on 29 May 2020. Further or alternatively, NCP committed a repudiatory breach of the NCP Option Agreement when it entered into the Management Agreement, which was accepted by BCC on 29 May 2020.”
[29]Paragraph 59 of the Defence pleads back to paragraph 79 of the Particulars of Claim to which I have already referred, identifying effectively six grounds of defence to the New Lease Losses. I need not address each of these in detail, but for present purposes, I note that paragraph 59.1 repeats the point that:
“On a proper construction of Clause 33.1.2 and the definition of ‘NCP Losses’ in the SPA, BCC is only liable to indemnify Grand Central under Clause 33.1.2 in respect of lost rent if it is agreed or determined that the loss of rent was reasonably foreseeable and has been reasonably and properly incurred a consequence of (1) any breach by BCC of the NCP Compensation Deed and/or the NCP Option Agreement and/or (2) a lawful refusal by NCP to enter into the New Lease.”
[30]At 59.2 it is therefore denied that Grand Central is entitled to the indemnity claimed pursuant to clause 33.1.2, and at paragraph 59.3 it is asserted that:
“Further, in breach of Clause 33.2, Grand Central encouraged the making of an NCP Claim by NCP, which means that BCC is not liable to Grand Central under the indemnity in Clause 33.1.”
[31]For the sake of completeness, clause 33.2 of the SPA reads as follows: “33.2 The Buyer is not to and it is not to permit anyone under its control to encourage and/or incite the making of any NCP Claim and/or disclose the existence of the potential to make an NCP Claim. If it is agreed or determined that the Buyer does not comply with the provisions of this clause 33.2, the Seller will not be liable to the Buyer under the indemnity in clause 33.1”.[32]At paragraph 59.4, BCC asserts that any entitlement Grand Central has to an indemnity for lost rent is only up to the date on which the NCP Option Agreement was terminated and at paragraph 59.5 BCC pleads that, further or alternatively, “Grand Central has failed to mitigate its alleged losses for the reasons stated at paragraph 59.2(c) above” (which concerns the termination of the TSA by Grand Central and its entry into the Management Agreement with NCP) and that “…as a result, Grand Central cannot now recover its alleged loss of rent from BCC”. At paragraph 59.6, BCC contends that Grand Central should charge rent from the date on which the remedial works are completed.[33]It is Grand Central’s case on this application that only the defences at paragraphs59.1 and 59.3 would provide BCC with a true defence to liability under the indemnity; paragraphs59.2 and 59.4-59.6 go primarily to causation and quantum. The proposed preliminary issue concerns the first of these six defences set forth in paragraph 59.1.[34]The Reply from Grand Central at paragraph 4 pleads back to paragraphs 9 and 10 of the Defence and Counterclaim, denying the allegation of unlawful conduct on the part of NCP and noting that, notwithstanding BCC’s allegations of breach against NCP “BCC has not added NCP as an additional party to these proceedings” (paragraph 4(6)). At paragraph 7 of the Reply, Grand Central denies paragraph 16 of the Defence and Counterclaim in the following terms:
“BCC’s construction seeking to limit the indemnity at Clause 33.1.2 of the SPA in respect of losses caused by NCP’s failure to enter into the New Lease to circumstances in which this failure was lawful is wrong. (2) Neither Clause 33.1.2 nor the definition of ‘NCP Losses’ contain any wording that suggests that BCC’s liability to indemnify Grand Central is so limited; the material part of the definition merely provides that losses must be ‘a consequence of the failure by NCP to complete a lease in the Agreed Form...’ Any failure, whether lawful or unlawful, applies. (3) Accordingly, BCC is liable to indemnify Grand Central in respect of reasonably foreseeable losses that have been reasonably and properly incurred as a consequence of (1) any breach by BCC of the NCP Compensation Deed and/or the NCP Option Agreement or (2) any failure by NCP to enter into the New Lease.”
Paragraph 8 of the Reply pleads that:
“Clause 33.8, together with Clauses 33.4 and 33.9 [of the SPA], are relevant to the proper construction of ‘NCP Losses’.”
[35]Paragraph 36 of the Reply pleads back to paragraph 59 in the Defence and Counterclaim, repeating paragraph 7 of the Reply. The proposed Preliminary Issue[36]Against that background, the preliminary issue sought by Grand Central is as follows:
“On a proper construction of the definition of ‘NCP Losses’ as referred to in clause 33.1.2 of the SPA, does the last part of the definition include only a lawful failure by NCP to complete a lease in the agreed form pursuant to the NCP Option Agreement as alleged by BCC at paragraphs 16 and 59.1 of its Defence?”
The principles applicable to Preliminary Issues[37]The TCC Guide sets out the principles that are applicable in considering whether to order the hearing of a preliminary issue and both parties set out the relevant provisions in their skeleton arguments.[38]Insofar as is relevant to this application, section 8 of the TCC Guide reads as follows: “Section 8. Preliminary issues8.1 General8.1.1 The hearing of Preliminary Issues (‘PI’), at which the court considers and delivers a binding judgment on particular issues in advance of the main trial, can be an extremely cost-effective and efficient way of narrowing the issues between the parties and, in certain cases, of resolving disputes altogether.8.1.2 Some cases listed in the TCC lend themselves particularly well to this procedure. A PI hearing can address particular points which may be decisive of the whole proceedings; even if that is not the position, it is often possible for a PI hearing to cut down significantly on the scope (and therefore the costs) of the main trial.8.1.3 At the first CMC the court will expect to be addressed on whether or not there are matters which should be taken by way of Preliminary Issues in advance of the main trial. Subject to paragraph 8.5 below, it is not generally appropriate for the court to make an order for the trial of preliminary issues until after the defence has been served. After the first CMC, and at any time during the litigation, any party is at liberty to raise with any other party the possibility of a PI hearing and the court will consider any application for the hearing of such Preliminary Issues. In many cases, although not invariably, a PI order will be made with the support of all parties.8.1.4 Whilst, for obvious reasons, it is not possible to set out hard and fast rules for what is and what is not suitable for a PI hearing, the criteria set out in Section8.1.5 Drawbacks of preliminary issues in inappropriate cases. If preliminary issues are ordered inappropriately, they can have adverse effect. Evidence may be duplicated. The same witnesses may give evidence before different judges, in the event that there is a switch of assigned judge. Findings may be made at the PI hearing, which are affected by evidence called at the main hearing. The prospect of a PI hearing may delay the commencement of ADR or settlement negotiations. Also two trials are more expensive than one. For all these reasons, any proposal for preliminary issues needs to be examined carefully, so that the benefits and drawbacks can be evaluated. Also the court should give due weight to the views of the parties when deciding whether a PI hearing would be beneficial.8.1.6 Staged trials. The breaking down of a long trial into stages should be differentiated from the trial of preliminary issues. Sometimes it is sensible for liability (including causation) to be tried before quantum of damages. Occasionally the subject matter of the litigation is so extensive that for reasons of case management the trial needs to be broken down into separate stages. 8.2 Guidelines8.2 below should assist the parties in deciding whether or not some or all of the disputes between them will be suitable for a PI hearing.8.2.1 The Significance of the Preliminary Issues. The court would expect that any issue proposed as a suitable PI would, if decided in a particular way, be capable of:8.2.2 Oral Evidence. The court would ordinarily expect that, if issues are to be dealt with by way of a PI hearing, there would be either no or relatively limited oral evidence. If extensive oral evidence was required on any proposed PI, then it may not be suitable for a PI hearing. Although it is difficult to give specific guidance on this point, it is generally considered that a PI hearing in a smaller case should not take more than about 2 days, and in a larger and more complex case, should not take more than about 4 days.• resolving the whole proceedings or a significant element of the proceedings; or• significantly reducing the scope, and therefore the costs, of the main trial; or• significantly improving the possibility of a settlement of the whole proceedings.8.3 Common Types of Preliminary Issue The following are commonly resolved by way of a PI hearing:… (c) Disputes as to the proper construction of the contract documents or the effect of an exclusion or similar clause.

The following are commonly resolved by way of a PI hearing:…

[39]My attention was also drawn to paragraph 5.4.1 of the TCC Guide to the effect that the desirability of dealing with particular disputes by way of a preliminary issue is usually to be considered at the first CMC.[40]Pausing there, I note that there is no suggestion by BCC that this proposed preliminary issue requires any evidence; it is a straightforward issue as to the true interpretation of a particular provision within the SPA. There is no suggestion that it cannot be heard in the very near future, that it will delay the potential for ADR, or that it will take any great length of time; indeed it seems to be agreed that it will take no more than one day of argument. There is also no real suggestion that any of the hazards associated with preliminary issues (as identified in paragraph 8.1.5 of the TCC Guide) apply in this case, save possibly the general point that the cost of two trials will be greater than one, a point to which I shall return in a moment.[41]My attention was drawn during the course of submissions to the guidance given by the Court of Appeal in McLoughlin v Jones [2002] QB 1312 at [66] per David Steel J:
“In my judgment the right approach to preliminary issues should be as follows. (a) Only issues which are decisive or potentially decisive should be identified. (b) The questions should usually be questions of law. (c) They should be decided on the basis of a schedule of agreed or assumed facts. (d) They should be triable without significant delay, making full allowance for the implications of a possible appeal. (e) Any order should be made by the court following a case management conference.”
[42]My attention was also drawn to the commentary at 3.1.10 of the White Book to the effect that:
“... there is always a risk that an order directing a preliminary issue will lead to unnecessary expense and delay if a decision on that issue will not be decisive of the litigation either way (because, for example, there are other bases of claim independent of it; Woodland Trust v Essex CC [2013] UKSC 66; [2014] A.C. 537 at [2]).”

Discussion

[43]Having regard to the relevant principles, the key issues between the parties on this hearing are whether the proposed preliminary issue would be capable of resolving a significant element of the proceedings and/or would reduce the scope of trial and costs of trial, and whether it is appropriate for the court to consider a preliminary issue of this type in advance of the case management conference. In considering these issues, I must, of course, have regard to the overriding objective of dealing with cases justly and at proportionate cost.[44]In my judgment, having regard to the relevant principles to which I have already referred and the arguments of the parties, this is a suitable preliminary issue for the court to try. It is common ground that there is no jurisdictional reason why a preliminary issue may not be ordered in advance of a CMC. Whilst it will no doubt be unusual and must obviously depend on the specific facts of any given case, the court has the power to order such a preliminary issue if it is in the interests of justice and in accordance with the overriding objective that it should do so.[45]A key question will undoubtedly be whether an early preliminary issue hearing can be justified on grounds of efficient case management. Whilst David Steel J in McLoughlin v Jones indicated that any order for a preliminary issue should be made following a case management conference, the two other Members of the Court, both of whom gave judgments in the appeal, did not make any observations on this point one way or the other and I note that the facts of that case were very far removed from the facts with which I am concerned. The wording of the TCC Guide is not prescriptive and does not seem to me to preclude the possibility that a preliminary issue might be appropriate in the right case prior to the CMC, hence the reference in the Guide at paragraph 8.1.3 to “at any time during the litigation.” I agree with Mr Nissen QC, on behalf of Grand Central, that those words would not have been necessary if the intention was to restrict preliminary issue hearings only to the period after the CMC.[46]The proposed preliminary issue identified in this case is a discrete issue of pure construction. If determined in Grand Central’s favour, it will dispose of the need for the lawfulness of the actions of NCP, a party not before this court, to be considered at trial. As to whether the issue identified is a significant element of the proceedings, I accept Mr Nissen’s submissions that there is no need for the issue identified as a preliminary issue to be a claim or a counterclaim in the proceedings. The question of whether an issue is a “significant element of the proceedings” may well be determined by the extent of the costs and time that is likely to be spent on it at trial and, to that extent, the question of “significant element” appears to me potentially to elide with the question of whether the preliminary issue may significantly reduce the scope and costs of trial.[47]In any event, I am satisfied that this proposed preliminary issue, if found in Grand Central’s favour, will have the effect of significantly reducing the scope and costs of the trial, just as it will also have the effect of disposing of a significant part of BCC’s primary defence to Grand Central’s claim under the indemnity. The fact that it will not dispose of the entirety of that defence and that the action will likely continue even if Grand Central wins on the preliminary issue is, of course, a relevant factor for me to consider but, in my judgment, it does not in this case outweigh the considerations to which I shall now turn.[48]I accept Mr Nissen’s submissions that the factual issues as to the lawfulness of NCP’s actions are likely to be extremely complex. Mr Nissen took me to correspondence concerning those issues and I have little doubt that they will generate a considerable degree of witness evidence and disclosure if they have to be contested. Miss Hannaford QC, acting on behalf of BCC, did not appear to me seriously to suggest otherwise. I note in this context that Mr Lancaster describes the issue to be addressed at trial on lawfulness in his witness statement at paragraph 49.9 in these terms:
“I suggest that determination of these matters will therefore not be overly complex – it will be a matter of (i) construing the NCP Option Agreement to determine precisely in what circumstances NCP was entitled to refuse to enter into the New Lease/terminate the NCP Option Agreement, (ii) establishing whether, on the facts, any of those grounds arose and (iii) determining whether NCP’s actions were therefore lawful or not.”
[49]With the greatest respect to Mr Lancaster, I disagree that the resolution of these issues (albeit that they can be simply stated) is unlikely to be complex or, indeed, time consuming. During his submissions, Mr Nissen identified sixteen issues which he said would have to be determined in order to address the question of lawfulness, including an issue potentially requiring expert evidence of a different character from that which will be required for the purposes of the remainder of the dispute in the action. Whilst I cannot say for present purposes whether he is right about all of the issues he identified, I have no doubt that he is correct when he says that the resolution of the issues surrounding unlawful termination (even as those issues are described by Mr Lancaster in paragraph 49.9 of his witness statement) would effectively generate a trial within a trial which would not, of course, have anything to do with the other parties to the action. I also have no doubt that in fighting the issue of lawfulness, Grand Central would want to, and be entitled to, examine NCP’s internal correspondence (which it says it currently has no access to).[50]I also bear in mind that, as both sides accept, NCP will not be a party to this action and that fact, in itself, is likely to create its own unique difficulties in dealing with the issue of lawfulness if it has to be dealt with at trial. NCP will not be legally represented and I do not consider it to be farfetched to think that NCP might well find itself prejudiced if there is a finding that it acted unlawfully. Of course, this court will from time to time be faced with the need to determine issues which might impact on the interests of third parties, but the potential for such a situation to be avoided by way of a short, discrete preliminary issue is another factor to weigh in the balance.[51]In circumstances where, as here, a short point of construction might have the effect of avoiding the need for the parties to deal with factual and perhaps expert evidence at trial on issues which will not concern any of the other parties to that trial, thereby obviating a substantial amount of costs, it does seem to me that the benefits of a preliminary issue hearing are likely to outweigh the disadvantages.[52]Miss Hannaford accepts that some costs will be saved if Grand Central wins the preliminary issue but says these are unquantifiable and against that must be weighed the fact that the preliminary issue itself will involve the expenditure of yet more costs and that two trials are more expensive than one. However, I do not consider this to be a significant balancing factor here where it is not in dispute that the preliminary issue is a pure point of construction and can be dealt with in only one day of court time. As I say, it is common ground that the preliminary issue requires no evidence and it will involve examination of only a handful of documents - primarily, the SPA. The submissions will be focused and self-contained. I note that Miss Hannaford made no criticism of the wording of the preliminary issue. I note also that there will be no need for any assumed facts in circumstances where the preliminary issue is a pure question of construction.[53]Accordingly, I reject Miss Hannaford’s suggestion that the hearing of the preliminary issue is itself likely to cost a substantial amount of money. It is no doubt true that if the matter had been dealt with at trial, the legal argument would have taken less time, but the trial would also have been taken up with the factual issues relating to lawfulness that will not arise on the hearing of the preliminary issue and will ultimately be unnecessary if Grand Central wins that hearing. I agree with Mr Nissen that the costs of the preliminary issue hearing pale into insignificance by reference to the costs that would be incurred if the issue of lawfulness had to be dealt with at trial.[54]Miss Hannaford also suggested that the effect of her client losing such a preliminary issue hearing might be that it would simply seek to get around the decision by raising a new and ingenious argument which would have the effect of rendering the decision nugatory. However, she did not identify any such argument to me and if her client had another sensible defence to the claims being advanced, I would have expected that it would have been advanced already in its Defence and Counterclaim. This argument does not appear to me to support her proposition that a preliminary issue in this case would represent a “treacherous shortcut”. Of course, it is true that if Grand Central loses the preliminary issue, then the question of lawfulness will have to be determined at trial but at least the construction point will have been dealt with.[55]Perhaps the point that gave me most pause for thought on Miss Hannaford’s skilful submissions was her argument that, in fact, various of BCC’s other defences (as set out in paragraph 59 of its Defence and Counterclaim) are likely to overlap with the issue of unlawfulness at trial - in particular, BCC’s defence at(i) paragraph 59.3 to the effect that Grand Central encouraged NCP in the making of an NCP Claim, and(ii) paragraph 59.5 to the effect that Grand Central failed to mitigate its alleged losses by reason of entry into the Management Agreement. Miss Hannaford submitted that I should not accept the beguiling shortcut that is proposed by Mr Nissen because (as I understood her submissions) a lot of the issues raised by the lawfulness defence would inevitably need to be looked at again at trial in any event, regardless of the outcome of the preliminary issue. In particular, she said, evidence will still be required as to the termination of the NCP Option Agreement.[56]However, on analysis, I reject the suggestion that there is likely to be any real overlap or any likely prejudice to BCC in the context of those defences if the preliminary issue is dealt with now.[57]Miss Hannaford did not identify any witnesses who would cover both the issue of lawfulness and the factual issues raised by BCC’s other defences and (although she submitted that the various defences on which she relied are “bound up together such that the events overlap”) she did not give any persuasive explanation as to why an issue as to lawfulness which involves the consideration of circumstances dating back to 2016 would significantly overlap with defences which all appear to be focused on conduct which occurred in 2020.[58]I am not convinced that the factual evidence that will be required at trial in respect of BCC’s defences in paragraphs 59.3 and 59.5 of its Defence and Counterclaim substantially overlaps with the evidence that would be required on the issue of lawfulness such that the preliminary issue hearing (even if determined in Grand Central’s favour) would not save any time or costs. I accept Mr Nissen’s submissions that where the foundations for the grounds of termination lie back in the events of 2016, there is no real temporal overlap between the issue of lawfulness and BCC’s other defences.[59]I also reject Miss Hannaford’s submission that the question of whether one party encouraged another to take action (paragraph 59.3 of the Defence and Counterclaim) is the same, or raises the same issues, as the question of whether, in taking action, that other party acted unlawfully. In deciding the issue of encouragement or, indeed, the question of mitigation of loss for the purposes of paragraph 59.5 of the Defence and Counterclaim, there is no need for the court to consider whether NCP’s actions were lawful or unlawful. The question will be whether Grand Central acted in such a way as to encourage NCP to act. I do accept that I am not in a position now to determine the strength of the encouragement defence, notwithstanding submissions in Mr Nissen’s skeleton to the effect that it is very weak, but, in any event, I do not consider that there is any real overlap between such defence and the lawfulness issue such that the proposed preliminary issue would not be sensible or in accordance with the overriding objective. The encouragement defence will remain on the pleadings and will have to be fought at trial but the lawfulness issue could be determined now by the preliminary issue in a cost-effective and self-contained manner.[60]On a related point, Miss Hannaford seemed to suggest during her submissions that the hearing of this proposed preliminary issue might duplicate matters that will have to be dealt with at trial. If the preliminary issue involved looking at evidence, then I would have sympathy with Miss Hannaford’s submissions. But where it is concerned only with a discrete point of construction, I reject the suggestion that (in the event of BCC succeeding on the preliminary issue) there will be any need to look at the same issue twice and Miss Hannaford did not identify what it was that she had in mind.[61]As I have said, there is no dispute that the matter might be capable of being heard in the near future, indeed perhaps prior to the case management conference. There will be no duplication of evidence, no witnesses and no findings made on the preliminary issue which could possibly be affected by the evidence of witnesses later called at the trial. It was not suggested that the prospect of a preliminary issue will delay ADR or settlement negotiations. Miss Hannaford points out that Vinci has not yet served its Part 20 Defence but she gave me no concrete reasons why anything that it might say in that Defence would have a bearing on this proposed preliminary issue. Indeed, the involvement of other parties in the action who have no interest in this discrete point tends, to my mind, to point in favour of seeking an early resolution of an issue which, if decided in Grand Central’s favour, would save all parties from having to sit through a trial involving factual issues which concern only Grand Central and BCC. I note that other parties have attended today’s hearing as observers and that none of those other parties has either suggested that there is a reason why the court should not make the order sought, or asked to be permitted to make submissions on the point today.[62]Finally, by way of overarching submissions, Miss Hannaford said that the issue that has been identified is but one of numerous issues raised in proceedings whose primary focus concerns the Grounding Defect in the Car Park. She points out that if settlement is to be achieved in the proceedings, then it is with reference to that issue that it will be achieved and she says that, whilst the preliminary issue might dispose of a part of BCC’s defence to the New Lease rent claim, this would be only one of six defences that BCC has to the New Lease rent claim. Accordingly, this proposed preliminary issue is, she says, incapable of resolving a significant element of the proceedings and nor will it significantly reduce the scope or costs of trial or significantly improve the possibility of a settlement.[63]Whilst I have weighed her submissions carefully in the balance, for all the reasons that I have already given, I remain of the view that a preliminary issue as proposed is in the interests of the overriding objective and effective case management. Whilst it may well be the case that the determination of this issue will not in itself greatly assist settlement negotiations one way or the other, that is not a necessary feature for the purposes of the exercise of my discretion. Prematurity[64]Finally, turning to the question of prematurity, I reject the suggestion that it would be premature to determine this question in advance of the CMC. The TCC Guide does not require that the matter be adjourned to the CMC and no advantage has been identified of doing so. Miss Hannaford says the court will be able to look in a holistic way at the question of whether to grant a preliminary issue hearing at that point i.e. by reference to all of the issues in the case. However, she did not answer Mr Nissen’s point that at a CMC with four parties it is unlikely to be desirable to take up time to hear this application, particularly in circumstances where I have already spent a substantial amount of court time on the matter today. The pleadings are closed as between BCC and Grand Central. I agree with Mr Nissen that there is good reason to use the time now to resolve a discrete substantive dispute in the proceedings which might, if it goes in Grand Central’s favour, save a great deal of time and money later. Indeed, if it were to be resolved before the CMC, as might be the case, it would assist in identifying the scope of the issues for trial and thereby assist in the identification of appropriate case management directions.[65]I reject the suggestion from Miss Hannaford that I should not order a preliminary issue because the court will be reluctant to have more than one preliminary issue in the proceedings and the judge at the CMC will want to have free rein to determine what that preliminary issue might be. Miss Hannaford did not identify any other preliminary issues that she thought would be under consideration at the CMC.[66]In my judgment, any preliminary issue must be considered on its own merits. This one is self-contained, will not take up a great deal of court time and resources and is an issue that will have to be dealt with at some point. If it is dealt with now, it has the very real prospect of saving substantial time and money in the future, avoiding a trial within a trial (on the lawfulness of a third party’s conduct) and removing an issue from the proceedings which concerns only two of the four parties. Accordingly, the proposed preliminary issue appears to me to be sensible and proportionate in the action as between BCC and Grand Central and, in my judgment, it is in the interests of the overriding objective for it to be determined as soon as possible. An early hearing of the preliminary issue can most certainly be justified on grounds of efficient case management. ------------------- This judgment has been approved by Smith J. Digital Transcription by Marten Walsh Cherer Ltd., 2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP. 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